The Pros, Cons, and Practices of Auto-Gratuity

January 10, 2017 Taylor Moore

 

To auto-grat or not auto-grat, that is the question. And it is a question that doesn’t have a one-size-fits-all answer. Some service staff are for it, and some are not. Some customers don’t mind it, some resent it. Some restaurants approve of it, some don’t.

 

Tipping, in its many forms, involves a precarious and, at times, perilous conversation. It is, after all, how servers make the bulk of their income. But at the same time, if service fails to meet the customer's’ expectations, a forced tip can leave a sour taste in a patron’s mouth.

 

With this in mind, we’ve drawn out some of the complexities that are involved in this conversation and put together some auto-grat policy pointers below.


 

Legalities

Auto-grat legalities in the US and Canada intersect and differ depending on region.

 

In 2014, a ruling by the United States Internal Revenue Service agency determined that an auto-grat is a non-tip wage. This means, that instead of walking out with cash tips at the end of a shift, servers receive auto-grat tips as an add-on to payroll after “it’s subject to Social Security tax, Medicare tax, and federal income tax withholding.”

 

Similarly, the Canadian Restaurant and Foodservices Association determined that tips billed as an automatic gratuity are considered “controlled tips”. Controlled tips are subject to taxes, as the Canada Revenue Agency requires, “the employee and employer to pay source deductions the same as wages.”

 

With a typical tip, servers pay their bar and kitchen dues and walk away with cash. But auto-gratuities are subject to the same taxes as their hourly wage. This leaves servers and restaurants with a choice: either get paid now and risk the whim of the customer (a risky roll of the dice), or add the standard eighteen percent and wait until payday.


 

Customer Sentiments

A quick Google search reveals some of the following feelings customers have when faced with an auto-grat:

 

“I’m at a pub yesterday to watch some Olympics and grab some food by myself at the bar. Grab bill, look down: "Automatic Gratuity – 20%". I had no waiter/server. I was at the bar and wasn't told about this charge. How is this any different than going to a supermarket, seeing an advertised price of $3 for a loaf of bread, and going to the till to pay and getting it scanned, and it coming up as $3.60? …”

Barry M

 

“Automatic gratuity is not only insulting to me as a diner. It’s insulting as a contributing member of the American economy. Why do restaurants and other service industries feel that the customer is responsible for paying the employees? Why are restaurant owners exempt from paying their employees a living wage? Why do we, as paying customers, let it happen?”

Jason Kessler

 

Needless to say, auto-gratuity isn’t always well received. While some customers see the auto-grat as taking away the guesswork, others see it as an infringement on their liberties as guests, or the restaurant industry using customers to pay staff. This auto-grat complexity makes it imperative to communicate with guests. After all, the service could be great but if the customer isn’t anticipating the bill they receive, they could easily end up offended, promoting them to rebuke the tip, simply never come back again, or take to the megaphone that is Yelp.


 

Things to Consider When Establishing an Auto-Gratuity Policy

With these two hot buttons in mind, here are a few discussion points and consideration for your internal auto-grat policies:


 

  • Inform the customer that an auto-gratuity will be in place: One best practice is to inform your customer at the beginning of the meal that an auto-gratuity will be applied “as per restaurant policy”. Another common practice is to highlight or circle the charge on the receipt so the customer doesn’t inadvertently double tip.

 

  • Consider a “suggested tip”: Instead of implementing an auto-grat, some restaurants are choosing to simply include a line item that reads “suggested tip.” This way, you’re giving the customer guidance rather than forcing their hand. This also enables the server to take the tip home with them that night, rather than waiting until payday. As Laura Hamel-Jones, a senior payroll consultant at Paychex in Fort Myers, says,"For large parties, some restaurants will switch to the suggested tip. When they have large affairs, like catering for a wedding or something of that nature, they automatically add gratuity to the check because they have to make sure they cover their staff."


 

  • Use auto-grat in selective scenarios: Often, customers expect auto-grats for large parties or catered events. They understand the auto-grat makes it easier for everyone to ensure staff are adequately tipped on complicated bills. But when it comes to smaller bills, that’s where the unrest may lie. To align with this, many restaurants choose to auto-grat on parties of six or more. Some even are providing the option of auto-grating 15%, 18% or 20%, leaving the exact percentage up to the customer.


 

  • Have an open discussion with your service staff: At the end of the day, it’s your service staff’s income on the line. They should have an understanding of the pros and cons of the auto-grat – how some customers might react and how their income is affected. Some restaurants allow their servers to make the call on whether or not they will invoke the auto-grat. Say they’ve given exceptional service to a table. They might feel that they will benefit financially if they did not include the auto-grat. Thus, they have the option to forgo auto-grating the table.



Whether you like it or not, the auto-grat conversation is not going anywhere, and neither are opinions on the subject. For the benefit of your restaurant, carefully consider what is best for you, your staff, and your guests, and put a clear policy in place.

 

 

 

About the Author

Taylor Moore

Taylor is a Content Marketing Manager at TouchBistro who writes about food trends, restaurant best practices, and tech innovations for the foodservice industry. She never says no to dessert and is on a life-long hunt for the best cheeseburger in the world.

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